Jefferies’ Brian Fitzgerald Reacts To Facebook Inc (FB) And Shutterfly, Inc. (SFLY) 4Q Prints


Jefferies analyst Brian Fitzgerald is joining the earnings conversation with mixed takes on Facebook Inc (NASDAQ:FB) and Shutterfly, Inc. (NASDAQ:SFLY). Though the analyst commends Facebook as it “crushes earnings (again)” in its fourth-quarter print, he remains wary on Shutterfly, particularly after its holiday season results came up short.

According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, five-star analyst Brian Fitzgerald is ranked #158 out of 4,373 analysts. Fitzgerald has a 70% success rate and realizes 13.1% in his annual returns. When recommending FB, Fitzgerald gains 13.3% in average profits on the stock. When suggesting SFLY, Fitzgerald earns 0.0%.

Let’s dive in:

Facebook Rules on Strong User Growth and New Video Prioritization 

Facebook delivered in a big way yesterday evening with a fourth-quarter print that outclassed expectation, stellar results carried on back of a widely growing user base. In light of beats across the board, globally “soaring” ARPU, and a new emphasis on video, the analyst reiterates a Buy rating on shares of FB with a $175 price target, which represents a 31% increase from where the stock is currently trading.

Fitzgerald believes, “With 4 million advertisers serving ads into FB’s massive base of 1.9 billion users, FB has built an unrivaled network connecting nearly every advertiser and consumer on the planet. This exceptional ad platform delivered another huge beat, driven entirely by the mobile ad business. Management says expenses will rise 40-50% Y/Y in 2017; our model assumes the low end of that range given prior conservatism on opex outlook.”

Moreover, the analyst deems this as “Another big earnings beat driven by the strong mobile ad biz,” with revenue rising 51% year-over-year to $8.8 billion in the social media giant’s fourth quarter, handily beating the Street’s expectation of $8.5 billion. Ad business likewise surged ahead 53% year-over-year to $8.6 billion, topping the Street’s $8.3 billion. Mobile ad revenue also brought in a beat, accelerating 61% year-over-year to $7.2 billion, beating the Street’s $7.1 billion. GAAP EPS climbed 123% year-over-year to $1.21, once again outperforming the Street, who had called for $1.04, as Fitzgerald adds, “highlighting the impressive operating leverage in this business. The beat was broad based with strong growth across all verticals, marketing segments, and geos.”

Meanwhile, Fitzgerald believes the giant’s new strategy to underscore focus on video content is a solid move, explaining, “FB will put video first across the entire family of apps. FB added a video tab at the bottom of the core app. New Year’s Eve was the biggest live video moment ever. FB will continue to invest in video content by splitting revenue with content creators.”

With 1.9 billion monthly active users (MAUs) and 1.2 billion daily active users, Fitzgerald concludes, “Facebook continues to onboard new users into its family of apps;” particularly as 1.2 billion MAUs from WhatsApp, which FB owns, send over 50 billion messages daily. Considering Instagram’s 600 million monthly active users, 400 million daily active users, and 150 million daily active users are showing Instagram Stories has potential even in 5 shorts months after its launch, the analyst sees Facebook in confident standing moving forward.

TipRanks analytics demonstrate FB as a Strong Buy. Out of 40 analysts polled by TipRanks in the last 3 months, 36 are bullish on Facebook and 4 remain sidelined. With a return potential of nearly 19%, the stock’s consensus target price stands at $158.67.

Shutterfly Merits a Price Target Cut After 4Q Earnings Miss

Shutterfly shares are crashing almost 16% after posting fourth-quarter earnings that revealed shortcomings in consumer growth as well as an announcement of a restructuring branding plan. On the heels of what Fitzgerald criticizes as “a miss quarter during the all-important Holiday season,” he reiterates a Hold rating on SFLY while cutting the price target from $52 to $46, which represents a just under 5% increase from where the shares last closed.

For the first quarter of 2017, SFLY management guided the midpoint of revenue to reach $187.5 million, adjusted EBITDA to ($5.8 million), GAAP EPS of ($0.98), compared to the Street’s projections of $199MM in revenue, $1 million in adjusted EBITDA and GAAP EPS of ($0.84). For the outlook for the rest of 2017, management looked to guidance at the midpoint for $1.15 billion in revenue, $220 million in adjusted EBITDA, and $0.63 in adjusted EPS. This was lower than what the Street had anticipated, forecasting revenue of $1.27 billion, adjusted EBITDA of $259 million, and GAAP EPS of $1.24.

From Fitzgerald’s eyes, “The miss was driven by weaker than expected results from Tiny Print and Wedding Paper Divas as well as lower AOV driven by product mix, promotions, and mobile mix.”

Core Shutterfly illustrated “mixed results,” including the shining star in mobile, where web combined with the app itself contributed to 18% of last year’s revenue. “Management highlighted that existing customers who migrate to mobile exhibit better LTV. Investment continues in simplifying purchasing aided by AI,” continues Fitzgerald.

Meanwhile, the analyst commends the revenue that grew from Business Solutions (SBS) for its 29% year-over-year hike, noting, “Mgmt continues to highlight the opportunity to expand verticals to take advantage of SFLY’s world class manufacturing capabilities.”

“SFLY announced a $15-20MM restructuring to better align investments to benefit all customers. The restructuring will unify the key brands under core Shutterfly while closing some smaller brands and looking for strategic alternatives for BorrowLenses,” Fitzgerald concludes, which he believes will enable the digital imaging company to invest in a solitary platform that subsequently could prove advantageous to its consumers.

TipRanks analytics indicate SFLY as a Buy. Out of 7 analysts polled by TipRanks in the last 3 months, 3 rate a Buy on SFLY stock while 4 maintain a Hold. The 12-month average price target stands at $53.40, marking a nearly 22% upside from where the stock is currently trading.